Advisory Contract Process: Still Under an SEC Enforcement Microscope
The Securities and Exchange Commission (SEC) continues to focus on the mutual fund advisory contract approval process with its recent enforcement action against Commonwealth Management Capital, LLC and certain fund board members. This action demonstrates the SEC’s “broken windows” approach to enforcement – even in cases where there is no apparent financial harm to fund shareholders. The SEC’s stated goal is to protect the integrity of the process, which is outlined in Section 15(c) of the Investment Company Act of 1940 (1940 Act).
This article examines the Commonwealth case and other Section 15(c) cases in recent years. We include relevant observations for investment advisers, fund boards, and independent directors.